Friday, July 8, 2011

More government help for homeowners

The Obama administration has announced yet another initiative to help struggling homeowners avoid foreclosure.

Earlier this week, the Department of Housing and Urban Development announced it would extend the period of time unemployed homeowners with Federal Housing Authority-backed mortgages could skip or make smaller mortgage payments to a minimum of 12 months, up from a minimum of four.

The extension should help solve a persistent problem with FHA's existing forbearance program: Even though servicers of FHA-insured loans were able to offer borrowers longer grace periods before, most opted to limit offers to the minimum period of four months, an inadequate timeframe, according to HUD Secretary Shaun Donovan.

"Providing the option for a year of forbearance will give struggling homeowners a substantially greater chance of finding employment before they lose their home," he said. Under the program, borrowers are expected to make up the skipped payments once they return to work.

I don't mind this plan nearly as much as Obama's earlier plans, because this plan focuses only on people who are actually unemployed. Most previous plans were designed to help people whose hopes of getting rich quick through real estate didn't pan out. Most previous plans focused on the value of the house, rather than the employment status of the homeowner.

That said, there are two things I don't like about this plan:

It sounds like homeowners under the plan will have higher mortgage payments after they return to work than before they lost their jobs. Although it's better than having to pay a mortgage when unemployed, homeowners may still have a financial burden that is too difficult to handle. Thus, they may still end up losing their homes.

The utter unfairness that homeowners are still treated better than renters by the government. A homeowner who loses his job gets to stop paying his mortgage, but a renter who loses his job still has to pay his rent. America's poor are much more likely to be renters than homeowners, so this is a regressive plan.